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Justice Minister Judith Collins has introduced stop-gap legislation to protect state-owned Public Trust from liability for failed finance company trustees if those firms choose to ditch their responsibilities.
The minister tabled the Trustee (Public Trust) Amendment Bill in Parliament today as an interim measure after Perpetual Trust asked the High Court to appoint the state-owned trustee to supervise Capital + Merchant Finance, citing a conflict of interest.
Perpetual faces litigation over its trusteeship of the failed lender, which would leave Public Trust exposed to a cost of between $200,000 and $300,000 if Perpetual cannot cover the fees and expenses. Existing trustee legislation means Public Trust is the trustee of last resort and has a duty to accept a role if appointed.
"This law change does not apply to the proceedings or outcome of the Capital + Merchant case, as that would be unfair," Ms Collins says in a statement. "However, if that case set a precedent, Public Trust could find itself lumbered with significant unexpected costs and a hugely increased workload."
Capital + Merchant's second receivers, Grant Graham and Brendon Gibson of KordaMentha, filed a claim against Perpetual Trust for breach of duty, with the case set to be heard on June 6.
The bill is a short-term measure while the Financial Markets Conduct Bill slowly works its way through the House and needs to be in place before the hearing to ensure the court does not create a precedent, according to the Justice Ministry's regulatory impact statement.
The legislation is expected to be passed under urgency this week.
Of the 60 failed finance companies in receivership, liquidation or moratorium, Perpetual was trustee to about 22.
"There is a risk that new applications to appoint Public Trust as replacement trustee for failed finance companies are significant, and may jeopardise its ongoing financial viability," the impact statement says.
It would only take five such appointments to cost Public Trust $1 million, "which would have a significant effect on Public Trust's operations and expenditure".
The ministry did not consult with trustees, saying "this could have led to trustees for failed finance companies filing further court proceedings to have Public Trust as replacement trustee before the government has an opportunity to amend the law".
The Financial Markets Conduct Bill, when passed, will empower the Financial Markets Authority to appoint a replacement trustee from among all the licensed supervisors.
Pyne Gould Corp completed the sale of Perpetual Trust last month to interests associated with London-based investor Andrew Barnes and has previously signalled plans to enter litigation funding against failed lenders.
Perpetual was one of two trustees to be singled out by a highly critical 2009 report on the country's failed finance companies by then-Registrar of Companies, Neville Harris, who said they "were slow to detect adverse financial issues developing and they responded too timidly" and questioned trustee diligence and accountability.
That report ultimately led to the inclusion of trustees in the securities law overhaul.